Can ‘Technocrats’ Lead Europe Out of Its Financial Crisis?

The delicate economic situation currently facing some countries in the eurozone has led to meaningful changes in the governments of those nations. The so-called "politicians" have stepped aside, paving the way for the "technocrats" — leaders with technical and economic expertise, whose role is to find solutions that are effective and go beyond ideological or political considerations.

 “A technocrat is someone who has a proven technical skill in very specific areas,” says Federico Steinberg, chief researcher in economics and international trade at the Real Instituto Elcano and professor of economic analysis at the Autonomous University of Madrid. “They are backed by their long experience. They don’t usually belong to any political party. The key is that they have the skills to be able to undertake reforms and make decisions that are unpopular because they are not worried about being reelected in any democratic elections.”

Nevertheless, Angel Saz, professor at ESADE’s Institute of Governance and Public Management, notes that “the dichotomy between politicians and technocrats is wrong and not a useful one.” However, he recognizes that “some politicians are not prepared when they get into positions of power.”

In both Greece and Italy, the technocrats have recently taken the reins. Their goal is to undertake the reforms needed for bringing those countries out of economic crises involving high fiscal deficits and strong pressure from financial markets, which have demanded ever higher returns on government bonds. According to an October report by Eurostat, the European Union’s bureau of statistics, Italy’s debt increased in 2010 to 1.842 trillion euros, equivalent to 118% of the country's gross domestic product (GDP), and its deficit amounted to 4.6% of GDP. Meanwhile, Greece suffered from a debt of 145% of GDP and a deficit of 10.6%. Both countries exceed the limits fixed by the EU’s Pact for Stability and Growth, which are a debt equivalent of 60% of GDP and a deficit of 3%.

“The case of Italy [where Prime Minister Silvio Berlusconi recently resigned] gives the impression that some politicians pass the responsibility off to other politicians so that they make the reforms and take the unpopular measures that have huge electoral costs,” Saz says. “The biggest problem is that elections and electoral incentives distort the messages of the politicians; sending messages that … are not valid in critical, tricky situations such as those facing us today."

Who Are the Technocrats?

Lucas Papademos, former vice-president of the European Central Bank (ECB) and former governor of the Bank of Greece, became prime minister of that country on November 11, taking over from Yorgos Papandreu. Papademos was elected after weeks of negotiations involving PASOK, [the Pan-Hellenic Socialist Movement], which was formerly the country's governing party; New Democracy, PASOK's chief opposition party, and the rightist party LAOS, about who would lead the government and bring the country out of its tough economic situation. Papademos qualifications as a "technocrat" include studying physics, engineering and economics at the prestigious Massachusetts Institute of Technology. Earlier, he taught economics at Columbia University in New York, and held a senior position in the economics department of the Federal Reserve in Boston.

Meanwhile, in Italy, Berlusconi decided to resign his position on November 12 after coming under severe domestic and international pressure to depart. Eventually, the Italian parliament agreed to replace Berlusconi with Mario Monti, who had studied economics at Bocconi University in Milan and Yale University in the U.S. In addition, Monti worked as a professor of economics at Turin University. In 1984, he was named rector of Bocconi University. In 1994, he became the European commissioner responsible for internal markets and financial services, and in 1999, he became the top EU official responsible for competition policy.

“The backgrounds of these two people are quite different,” says Mauro Guillén, a Wharton management professor. “Monti has political experience in Europe as a commissioner. Papademos has experience only as a central banker. Both are competent. But what matters now is if they are going to be able to act like politicians."

According to Steinberg, both Monti and Papademos have “very good” backgrounds that “perfectly fit the description of a technocrat.” He says that putting this sort of leader at the head of a government “does not guarantee that they are going to solve the problems of a country.” However, he adds, “it is a very interesting alternative, since the politicians who earlier held these positions have demonstrated that they are incapable of doing that.”

One of the criticisms leveled at the new technocrat-led governments of Greece and Italy is that they have not been elected by the people at the ballot box, so some believe that they are not totally legitimate. On the one hand, Saz notes that these governments “have the support of their parliaments, so they absolutely do have democratic legitimacy.” However, Steinberg suggests that this problem does exist and there “must be a very timely alternative solution to setting up new democratic elections.”

Weathering the Storm

Throughout history, there are few examples of similar cases that can help reveal whether or not this approach to governance will work. Guillén notes that while he can think of “no positive experience” in that regard, “people usually cite the example of Chile under [Augusto] Pinochet [who, when he governed between 1973 and 1990, entrusted economic management to a group of technocrats known as the "Chicago Boys" because most of them had done their graduate studies at the University of Chicago].” However, Guillén adds, “I don’t see this as the model to follow.” Along the same lines, Steinberg says that “in recent history we can cite examples of technocrats taking control of [Argentina] at the end of the 1980s or at the beginning of the 1990s. The big difference from what is happening today in Europe is that those people were democratically chosen in the polling booths.”

Both experts agree that governments run by technocrats can face problems when it is time for them to implement the tough economic adjustment measures that are necessary. As Guillén notes, “Politicians are concerned about creating coalitions and organizing support for policies that they want to put into action. Technocrats are fundamentally concerned about providing advice. We run the risk that the unelected technocrats fail if they find themselves faced with popular opposition to their policies.”

Along the same lines, Steinberg maintains, “If the reforms and measures that they want to impose are very difficult ones, they can face popular disapproval and very strong social pressure that forces them to abandon their positions prematurely, without completing their tasks.” In his view, the reforms that currently have to be made in Italy and Greece are necessary. So in this sense, “You have to do a very good job of explaining them to the population; you need to specify the plans that are going to be carried out and why they have to be executed.”

The response of the Greek and Italian people will crucial to the sustainability of the new regimes in each country, Saz adds. "If there are severe protests and … everything is paralyzed for days, you won’t be able to sustain a country in such a situation if their governments are very technocratic.”

Lingering Doubts

Although only time will tell if the decision to choose technocrats to run these countries was the right one, the situations in Italy and Greece cast a spotlight on the role of politicians and their ability to deal with truly critical situations.

“The ideal thing would be if the political leaders also had technical skills so they could deal with situations such as these,” notes Steinberg. “In Europe, most [leaders] have a very strong political background and very little technical background.” Guillén suggests that “what we need is to have better politicians; not to disqualify all of them. At times like this, I wish we had Kohl, Thatcher and Mitterrand in control in Europe. Unfortunately, Merkel, Cameron and Sarkozy are not up to that level in these circumstances.”

According to Saz, many politicians have identified and understood perfectly what measures were needed in times like these. But many leaders are not able to move forward with those measures because of the high electoral costs involved. “In Spain [during the recent presidential elections on November 20], it seems that political parties that already took very strong [austerity] measures in those localities where they govern, or that have shown an intention to do so, wound up being strengthened [by the electoral process]. It has also been demonstrated that [those parties] have not [paid] any [negative] electoral price as a result [of the positions they took]. On the contrary, it seems that the electorate understands that you have to make certain decisions that cannot be avoided in the current economic situation. And they have chosen parties that are capable of doing that."

Spainis another European country that has been forced by the crisis to change its government. The Spaniards dissolved the country’s parliament and held democratic elections. The People’s Party, led by Mariano Rajoy, defeated the Socialists (who had led the country for the past eight years) by a large majority that gives them total control of the Parliament and the Senate. Throughout the election campaign, the center-right People's Party assured the public that it would take whatever measures are necessary to balance the public accounts, make the economy grow and reduce the high rate of unemployment.

Saz doesn’t know if this change means that the politicians will be more realistic and transparent about governing from now on. “Right now in Europe, it is very hard to hold elections without dealing with these two key themes: On the one hand, the reforms and adjustments that have to be carried out in the national realm, and on the other hand, opening the first discussions about what needs to be done on the continent to deal with this critical situation.” Such discussions affect the political trends that will emerge in Europe in the future.

Guillén “strongly doubts” that placing technocrats in positions of power is a trend that will continue in coming years. “We are in a democracy. So everything has to be dealt with through elections.” Steinberg notes that it is very difficult to have leaders with advanced technical skills, but weak political backgrounds, “because the party structures in Europe are very strong. What everyone hopes for is that governments are increasingly composed of highly trained people in the ministries where a high level of technical knowledge is required."

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